Season 1,

28: How to Lose Money by Letting Fear Control You with J. Massey

February 25, 2017

J. Massey is a full-time real estate investor, entrepreneur, popular podcast host, author, speaker, coach and all-around problem solver. He is well-known for providing best-in-class advice and strategies to help new and experienced investors the world over. J.’s platform is simple: He uses his time looking for investment opportunities (a.k.a., problems to solve through real estate transactions), closing deals and teaching others how to find and manage similar opportunities, including getting Deals At Discounts and Raising Private Capital to Investing in Multifamily Properties, getting leads and negotiating the deal.

Fear is deadly. Much like greed, fear can cloud your thinking and in turn, your decisions. J. offers timeless principles and practical guidelines for overcoming fear in your business and life. You can listen to or contact J. Massey at www.CashFlowDiary.com as well as get a free copy of his book.

GREEN FLAG: SMOOTH SAILING

A few years ago I was transitioning into multi-family buildings and I learned of an ER Doctor who had some apartments for sale. He had been trying to manage them by himself and from another state. It looked like a great opportunity for me on this 12 unit building. The sale went fairly smooth, with my own self being the only hold-up because of arguing the price a bit too long. But it went through and everything looked really good. I even found a guy to manage all the apartments who also did all the repair and rehab work!

RED FLAG: NO CASH FLOW

The first sign of trouble was when there were no more units to rehab. We had been buying and rehabbing a lot of apartment buildings one after another in rapid succession. Then one day my CFO came to me and said something was not right. She tried to tell me that the cash flow was not adding up somehow. I didn’t want to hear this. I didn’t think it could be that bad so I chose to ignore what she was telling me. I think I was afraid to believe it could be that serious.

I should have paid attention because the alarms were going off all around me. As long as there were new buildings coming in to rehab and rent out there were no apparent problems. It looked like the rental money was coming in and everything was fine. When we would go to inspect a new building we would be shown 3 or 4 that were in perfect condition with renters in place and it never occurred to us that the rest of the units might not be the same way.

It finally became impossible to ignore the figures that were not adding up so I started asking for more documentation. I also sent my internal team out to the buildings to camp out and unravel what was going on. It appeared that there was some kind of disconnect between our records and the money coming in, and that it was because of the Building Manager/Rehab Man.

BLACK FLAG: CONTINUAL BAD NEWS

We now knew that money was disappearing and were getting involved in all the details to find out how bad it really was. We also knew the problem was our Manager who had no real accountability and was somehow rerouting our money, but we could not discover exactly how or where it was going. We were getting a continual stream of bad news, such as the many things that were paid for and never completed or done poorly. But the worst was that the bad Manager had been very masterful in his deception. It turned out that there was a huge percentage of our apartments that were totally unfinished and/or had no renters in them. When we had come for inspections he had only shown us the few that were totally finished…..while the rest of them were lying empty or barely livable.

I had no idea what I was going to do. My biggest concern had always been the quality of life for my workers and tenants. We had 80 units, a lot of tenants, crew that needed paid, and it was nearing Christmas. We needed to let the Manager go, but we could not yank him out until we had a replacement person(s).

WHITE FLAG: SALVAGE OPERATION 

We began researching, vetting and interviewing. We developed 7-8 pages of detailed questions that would guarantee anyone a great Property Manager, and when we found the right ones, we hired several managers instead of just one. We then ousted the bad manager and implemented a plan of strict accountability for the new ones.

From there we salvaged what we were able to and sold what we could not. We carried financing on some of the units we could not fix but in the end, I took most of the hit personally. At last count that was over $800,000 and the meter is still running. It was very tough to tell the investors when the temptation was strong to blame and run. I dealt with anger and depression for many months afterward.

During the aftermath of our losses we learned that the bad Manager/Rehabber had been pulling the same scheme on others. We were not the only ones this had been happening to. He had gotten in over his head with investors and some even in other countries. One of them must have gotten fed up because he was found dead. They never found the person who knocked him off.

CHECKERED FLAG: LEARNING TO FORGIVE

The Bible talks about forgiving, but it was really, really hard to get to that point! I learned a new definition of what forgiveness even meant. I can’t imagine anything much harder than forgiving that man all the damage he had done to us and our tenants. I had been trying to do good things for the African American community and could not believe that another African American of all people would sabotage that! But I had a lot of choices to make and holding on to such great frustration and anger would not help those choices get made, nor would they make me a better husband or father. I needed to move on and let go. I forgave him for myself really, so that the situation would not occupy my every move, thought process.

I am more or less at peace with things now. So many good things have come from that awful situation and really we would not have been able to make some of the fantastic deals we have made since then if not for what happened.

FAILING FORWARD

In each episode of How to Lose Money, we ask our guests to answer a few questions about failure. Here’s what came out of this episode:

  • Why did this failure experience happen to you?

I think I was born with this ability to believe people are worthy of trust and will do what they say. I was afraid to believe this kind of thing could happen to me. I now surround myself with people who help me stay more balanced in those perceptions.

  • What’s the single most important lesson you’ve learned from this?

Don’t have just a single plan for anything. Don’t go without a back-up. An airplane has 2 wings….this situation could not have happened with the checks and balances we have in place today.

  • How do you protect yourself from failing in this way again?

Get the checks and balances in place. Learn to listen and communicate effectively with your people so you can head off many issues before they become disasters.

  • Who do you turn to when you need help?

Jesus would be my answer, I turn to Jesus. I have a strong support system at home and at church which is very important to me. I also have my internal business team, who by the way stood with me through everything that happened, and who are still with me today.

  • What advice would you give to someone in a similar position to yours?

You are capable of adapting. This problem was given to you so you can become more than you are; to make you a better person. Stick around and don’t run to something new. You just paid full price for that lesson, now go and apply it!

Believe that in the center of that painful failure is the seed of what you need to become great! These things come to remove the layers and allow you to step into the greatness you were born for.

This episode is based on an interview with J. Massey . To hear this episode, and many more like it, you can subscribe to How to Lose Money. If you don’t use iTunes, you can listen to every episode here.

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